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Hinopak Motors Limited

Annual Reports

TOGETHER TOWARDS PROGRESS

On October 19, 1998 Hino Motors, Ltd., Japan and Toyota Tsusho

Corporation acquired all the shares of the A1-Futtaim Group of

Dubai to take controlling interest in Hinopak Motors Ltd. with a

joint shareholding of 89%.

This major investment in Hinopak represents Hino's commitment

to its valued customers in Pakistan. We look forward to a new era

of prosperity and progress for Pakistan and Hinopak.

CONTENTS

COMPANY INFORMATION

Board of Directors

Kunwar Idris

(Chairman)

Masamichi Yoshimizu

Masaharu Shibata

Masayasu Okamura

(Managing Director & Chief Executive)

Susumu Hongo

Yuji Ishibashi

Takeshi Ito

(Deputy Managing Director)

Company Secretary

Mohammad Z. A. Syed

Bankers

ABN - AMRO Bank

Allied Bank of Pakistan Limited

American Express Bank Limited

Bank Alfalah Limited

Bank of America NT & SA

Credit Agricole Indosuez

Habib Bank Limited

Hongkong & Shanghai Banking Corporation Limited

Mashreq Bank psc

National Bank of Pakistan Limited

Societe Generale - The French & International Bank

Standard Chartered Bank

The Bank of Tokyo - Mitsubishi, Limited

Auditors

A.F. Ferguson & Co.

Legal Advisors

Kabraji & Talibuddin

Registered Office

D-2, S.I.T.E., Manghopir Road,

P.O. Box No. 10714, Karachi - 75700, Pakistan

NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the 13th Annual General Meeting of the Shareholders of Hinopak Motors Limited will

be held at the Registered Office of the Company situated at D-2, S.I.T.E., Manghopir Road, Karachi, on Thursday,

3rd December, 1998 at 11:30 a.m. for transacting the following business:

ORDINARY BUSINESS

(1) To receive and consider the Audited Accounts of the Company for the financial year ended 30th June, 1998, together

with the Report of the Directors and Auditors.

(2) To appoint Auditors for the year 1998-99 and to fix their remuneration. The retiring Auditors Messrs. A. F. Ferguson

& Co., Chartered Accountants being eligible, offer themselves for re-appointment.

(3) To elect Directors of the Company in accordance with the provisions of Section 178 (1) of the Companies Ordinance,

1984. The number of elected Directors fixed by the Board of Directors Under Section 178 (1) of the said Ordinance is

seven (7). Mr. Kunwar Idris, Mr. Masamichi Yoshimizu, Mr. Masaharu Shibata, Mr. Masayasu Okamura, Mr. Susumu

Hongo, Mr. Yuji Ishibashi and Mr. Takeshi Ito will offer themselves for election for a term of three years commencing

from 3rd December, 1998.

SPECIAL BUSINESS

By way of special business to consider and, if thought fit, to pass the following resolution, as a special resolution to ammend

the Articles of Association of Hinopak Motors Limited:

RESOLVED AS A SPECIAL RESOLUTION THAT the articles of association of the company be and are hereby ammended

as follows:

(1) Article 78 is ammended by deleting the words in line 2 "not be less than seven and not more than ten." by the words

"be seven."

By Order of the Board

Karachi:

MOHAMMAD Z. A. SYED

12th November, 1998

Company Secretary

Notes

(i) A member entitled to attend and vote at this General Meeting is entitled to appoint a Proxy to attend, speak and vote

in his place at the Meeting. Instrument appointing a Proxy must be deposited at the Registered Office of the Company

at least forty eight hours before the time of the Meeting.

(ii) The Share Transfer Books of the Company will remain closed from 19th November, 1998 up to 3rd December, 1998

(both days inclusive). The Share Transfer Books will re-open on Friday, 4th December, 1998.

(iii) The Shareholders are requested to intimate any changes in their addresses to: The Company Secretary,

Hinopak Motors Limited, D-2, S.I.T.E., Manghopir Road, P.O. Box 10714, Karachi-75700, Pakistan.

(iv) Statement under Section 160 (1) has been enclosed with the notice sent to the shareholders.

Statement Under Section 160 of the Companies Ordinance, 1984

This Statement is annexed to the Notice of Thirteenth Annual General Meeting of the Shareholders of Hinopak Motors

Limited to be held on 3rd December, 1998 at which certain special business is to be transacted.

The Special Business is to establish the number of Directors to seven (7). The purpose of this statement is to set forth

the material facts concerning this special business.

The Article 78 of the Articles of Association of Hinopak Motors Limited are proposed to be ammended by the above

mentioned special resolution at Thirteenth Annual General Meeting of the Shareholders of Hinopak Motors Limited.

This change has been recommended by the Directors of the Company.

No Director is personally interested, directly or indirectly i/~ this business except to the extent of his shareholdings in the

Company.

CHAIRMAN'S REVIEW

I welcome you to the 13th Annual General Meeting of the

Company to present the accounts and report on the

performance of your Company for the financial year ended

30th June, 1998.

GENERAL

The demand for commercial vehicles fell steeply during the

year. Particularly hard hit was the product segment of your

Company. The number of all makes and models of medium

and large trucks and buses manufactured by all local

companies fell to one-third of the number in the previous

year. The sales fell even more steeply to an all-time low. The

depression in the commercial transport sector was thus far

more pronounced than in the other sectors of the economy.

Besides the reduced movement of goods most of the free

market money which goes to finance transport was believed

to be tied up in dollars for higher speculative gains.

The severest blow to the local industry came towards the

close of 1997 when costly built-up buses were imported at a

reduced rate of custom duty to operate on the Islamabad-

Lahore motorway. As the duty was also reduced on CKD

buses the customers waited for reduction in prices both of

local trucks and buses to take effect. The reduction was not

notified till March 1998. In all this period the sales

plummeted.

OPERATING RESULTS

The fall in the market demand resulted in lower sales and

consequent large unabsorbed production overheads. The

sales revenue for the year declined by Rs. 1,452.1 million to

Rs. 907.8 million, - staggering 62%, resulting in operating

loss of Rs. 140.4 million. In volume the reduction was 60%

in chassis and 41% in bus and truck bodies.

The imposition of sales tax on spare parts drastically

curtailed their sales by Rs. 110.4 million to Rs. 26 million, a

fall of 81%. The customers switched over to informal

sources to avoid the new tax burden.

Low sales and consequent higher inventory levels increased

the financial charges by Rs. 51.4 million to Rs. 114 million,

as a result the loss before taxation amounted to Rs. 242.1

million. The management undertook some cost cutting

measures including voluntary severance scheme.

The Company had introduced, the new series of "Super

Flyer" trucks and AK-MA buses were introduced in July

1996 and, the "Roadliner Grand Saloon" luxury bus after the

duty reduction in March 1998. The latter was a thumping

success.

The Company maintained its dominant share in the shrinking

market till December 1996 when a decline set in mainly

because of high prices of the spare parts of new models. That

situation the company is trying to rectify with the support of

Hino Motors and Toyota Tsusho Corporation. The fact that

our competitors have kept the old model in production for 11

years, however makes it difficult to match their prices. Loss

in market share occurred even in the past on the introduction

of new model as the customers in Pakistan are averse to

change in technology particularly if it results in higher

maintenance cost. Over the past two years that loss was

compounded by constant and steep decline in demand. As

the number of new model vehicles on road increases cheaper

sources of parts from reconditioned or scrap imports and

local manufacture will develop. In the meantime the

company is trying to provide parts at maximum discount

ensuring easy availability in all parts of the Country.

DESIGN & DEVELOPMENT

Besides the new shape Roadliner (43 seater A/C bus)

renamed Roadliner Grand Saloon the following specialized

vehicles were also produced:

· Truck Mounted Generator Unit

· Cargo Van Track

· Garbage Dumper

· Bottom Loading Fuel Trinket

· Air Conditioned Ambulance

EXPORT BUSINESS

In the absence of incentives for export the country lost a rare

opportunity to sell 1000 commercial vehicles to East African

countries. Export is not economical in the existing tariff

regime competing with the East Asian countries because of

the heavy devaluation of their currencies.

EFFECTS OF TRADE POLICIES AND DUTY STRUCTURE

The duty on bus CKD was increased from 30% in 1996 to

40% in 1997 but then reduced to 15% in early 1998. The

sales tax was also reduced to 12.5% from 18%. These

concessions were expected but were late in coming. In the

intervening period the sales slumped.

PRODUCTION

Because of the depressed demand only 426 chassis and 153

bus bodies were produced by the Company against 1370 and

300 in the previous year.

DELETION TARGETS

The Company kept pace with the targets set by the

government for the local manufacture of components.

ISO 9000 CERTIFICATION

The Company completed the first year of ISO 9000

certification of its quality management systems. The

surveillance audit was held in June 1998 and the Company

was certified for another year.

COMPUTERIZATION AND YEAR 2000 COMPLIANCE

As you may be aware, the new millennium will effect virtually

all computer-based systems in your Company. The year 2000

or the "millennium bug" project was initiated in the financial

year 1996-97. As reported last year, in the first phase of this

project new versions of the integrated manufacturing and

financial (software)-CP System and the IBM AS/400 model

150 mini computer were implemented, both these systems are

year 2000 compliant. In the current financial year we plan to

have all our computer-based systems to be in compliance with

"four digit" year 2000 dates.

LABOUR MANAGEMENT RELATIONS

The labour management relations remained cordial. The

Union and executives extended full cooperation to the

management in cutting cost necessitated by decline in sales.

STAFF WELFARE/SPORTS & RECREATION

The sports & recreational activities have been substantially

cut down for reasons of economy. The Hinopak Trophy

KCCA inter-firm cricket tournament was however held for

the 7th consecutive year in which over 40 teams participated.

VOLUNTARY SEVERANCE SCHEME

A voluntary severance scheme was introduced in December

1997 reducing the manpower strength by 33%. Further

reduction is contemplated in the course of the year.

FUTURE OUTLOOK

The depressed commercial vehicle market shows no sign of

recovery. The hope for profitability is pinned on the sale of:

petroleum and liquid and compressed gas transportation

vehicles; and buses for the motorway and cities in Punjab.

A special loan for public transport vehicles contemplated by

the Ministry of Communications in association with the

commercial banks is also expected to give fillip to the sale of

vehicles.

The prospects of business in the current financial year

however remain generally bleak as are for the economy of

the Country. I hope the Shareholders retaining confidence in

the products and management of the Company would

patiently wait for it to regain the position of eminence in the

market it has held for long years.

KUNWAR IDRIS

Karachi: 20th October, 1998

Chairman

DIRECTORS REPORT

The Directors of Hinopak Motors Limited present this report, together with the Accounts of the Company for the year ended

30th June, 1998 and recommend no transfer from reserves as detailed below:

1998

1997

(Rupees '000)

OPERATING RESULTS

(Loss)/Profit before taxation

(242,124)

102,705

Provision for taxation

(4,550)

(45,795)

----------

(Loss)/Profit after taxation

(246,674)

56,910

EXTRAORDINARY ITEM

(12,673)

----------

(259,347)

56,910

UNAPPROPRIATED PROFIT BROUGHT FORWARD

2,881

972

----------

(Loss)/Profit available for appropriation

(256,466)

57,882

LESS: APPROPRIATIONS

Transfer to Revenue Reserve

(24,000)

Proposed final dividend Nil (1997: 25 %)

(31,001)

----------

(55,001)

----------

UNAPPROPRIATED (LOSS)/PROFIT CARRIED FORWARD

(256,466)

2,881

==========

DIRECTORS

The Directors who served during the financial year ended 30th June 1998 were:

Keith S. Stack

Kunwar Idris

Late. Shah Jalil Alam

Masamichi Yoshimizu

John E. Haines

Kanji Kawamura

C.D.W. Leitch

Hajime Atsumi

Nazir Ahmed Shaikh

Yuji Ishibashi

M. A. Qaiyum

Hasan Irshad

During the financial year ended 30th June 1998, the changes in the Directors are summarized in the table below:

---------------------------------------------------------------------------------

Director

Date of

Nominee of

In Place of

Reasons for

Appointment

Change

---------------------------------------------------------------------------------

Mr. John E. Haines

18-2-98

A1-Futtaim

Late. Shah Jalil Alam

Deceased

Mr. Yuji Ishibashi

14-4-98

TTC

Mr. Hajime Atsumi

Resigned

Mr. M. A. Qaiyum

13-5-98

Al-Futtaim

Mr. Keith S. Stack

Resigned

---------------------------------------------------------------------------------

On 9th September 1998, Mr. Susumu Hongo, nominee of Hino Motors, Ltd., Japan, was co-opted as Director in place of

Mr. Kanji Kawamura.

The Board places on record its appreciation and gratitude for the services rendered to the Company by Messrs. Keith S. Stack,

Shah Jalil Alam, Hajime Atsumi, and Kanji Kawamura. Also, a special recognition is given to the services rendered to the

Company by Mr. Keith S. Stack as Chairman.

REVALUATION OF LANDS & BUILDINGS

The Directors are of the opinion that the Company's leasehold lands and buildings on these leasehold lands are worth

Rs. 334.9 million and Rs. 167.2 million respectively. This opinion is based on the revaluation of fixed assets carried out by

an independent valuation company - Oceanic Inspection (Pvt.) Limited. The Directors have recommended to the Shareholders

to approve the accounts for the financial year ended 30th June 1998 after recognizing the surplus on revaluation, of lands and

buildings on these lands, of Rs. 395.2 million.

PATTERN OF SHAREHOLDINGS

The pattern of shareholdings of the Company as at 30th June 1998 is given on page 39.

SIGNIFICANT CHANGE IN SHAREHOLDINGS & TOP MANAGEMENT

On 19th October 1998, after the Directors' resolution recommending to the Shareholders to approve the accounts for the

financial year ended 30th June 1998, the significant changes in shareholdings and top management are detailed below:

* The representatives of A1-Futtaim Industries (Private) Limited concluded the sale of Al-Futtaim's entire equity interest in

the Company consisting of 7,316,330 ordinary voting shares, to the remaining joint venture partners Hino Motors, Ltd.,

Japan and Toyota Tsusho Corporation of Japan.

* After the above-mentioned transaction, Hino Motors, Ltd., Japan holds 59.3% and Toyota Tsusho Corporation of Japan

29.7% of the ordinary voting shares in issue. The remaining 11% of ordinary voting shares continue to be held by local

institutions and the general public.

· Messrs. John E. Haines, C.D.W. Leitch, Nazir Ahmed Shaikh, M. A. Qaiyum and Hasan' Irshad, the five of the nominee

directors of A1-Futtaim Industries (Private) Limited, resigned from their offices. These resignations were part of

Al-Futtaim's agreement to sell its entire 59% equity interest in the Company to Hino Motors, Ltd., Japan and Toyota

Tsusho Corporation, Japan.

* As a result of the above-mentioned casual vacancies, three new directors were co-opted. Two were nominees of Hino

Motors, Ltd., Japan - Mr. Masayasu Okamura and Mr. Masaharu Shibata; and one was nominee of Toyota Tsusho

Corporation, Japan - Mr. Takeshi Ito.

* Subsequently, the Directors:

* Elected Mr. Kunwar Idris, as Chairman. He replaced Mr. John E. Haines who was a nominee of A1-Futtaim

Industries (Private) Limited:

* Appointed Mr. Masayasu Okamura as the new Managing Director and Chief Executive of Hinopak Motors Limited,

he was jointly nominated by Hino Motors, Ltd., Japan and Toyota Tsusho Corporation of Japan. He replaced

Mr. Hasan Irshad who was a nominee of AI-Futtaim Industries (Private) Limited, Dubai; and

* Appointed Mr. Takeshi Ito as Deputy Managing Director. nominated by Toyota Tsusho Corporation of Japan.

The Directors placed on record their appreciation and gratitude to A1-Futtaim Group and its nominee directors Messrs. John

E. Haines, C.D.W. Leitch. Nazir Ahmed Shaikh, M. A. Qaiyum and Hasan Irshad for the services rendered and guidance given

by them as Directors of the Company. Also, a special recognition was given to the services rendered by Mr. John E. Haines

as Chairman and Mr. Hasan Irshad as the Managing Director and Chief Executive of the Company.

As a result. after disposal of equity interest in the Company by AI-Futtaim Industries (Private) Limited. the composition of

the new Board of Directors of the Company is as shown on page 3.

AUDITORS

The Auditors, Messrs. A. F. Ferguson & Co., retire at the conclusion of the Thirteenth Annual General Meeting and, being

eligible, offer themselves for re-appointment.

HOLDING COMPANY

AI-Futtaim Industries (Private) Limited was the holding company of Hinopak Motors Limited during the financial year ended

30th June 1998. On 19th October 1998, subsequent to the sale, by A1-Futtaim Industries (Private) Limited of its entire equity

interest in the Company, Hino Motors, Ltd., Japan shall be the holding company of Hinopak Motors Limited, by virtue of

their 59.3% shareholding in the Company.

HASAN IRSHAD

By Order of the Board

Managing Director & Chief Executive

JOHN E. HAINES

Karachi: 19th October, 1998

Chairman

10 YEARS AT A GLANCE

Rupees in Million

Year ended 30th June

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

ASSETS & LIABILITIES

Net Assets

Fixed Operating Assets

81.92

91.23

126.66

134.60

163.14

205.77

201.01

165.84

184.62

573.02

Capital Work in Progress

2.20

2.34

3.52

3.02

3.31

14.85

7.53

Long Term Investments

2.00

5.00

5.38

5.75

Other Long Term Assets

3.64

4.42

6.82

9,59

24.13

28.63

28.32

31.87

34.10

33.90

Current Assets

417.57

482.67

774.46

650.25

1,027.82

947.80

816.43

1,281.70

1,530.13

910.51

Less: Current Liabilities

378.02

427.38

675.63

491.09

706.06

818.92

789.85

1,092.43

1,306.96

930.87

----------------------------------------------------------------------------------------------------------------------

Total Net Assets

127.31

153.28

235.83

303.35

42,205

366.59

272.76

391.98

454.80

592.31

----------------------------------------------------------------------------------------------------------------------

Financed By

Issued. Subscribed & Paid up Capita

103.34

124.01

Reserves-Net of unappropriated Prof

14.70

40.33

125.21

191.06

308.06

237.93

166.27

288.64

293.88

34.53

Long Term Liabilities

9.27

9.61

7.28

8.95

10.65

25.33

3.15

36.92

38.55

Surplus on Revaluation of Fixed Ass

395.22

----------------------------------------------------------------------------------------------------------------------

Total Funds Invested

127.31

153.28

235.83

303.35

422.05

366.59

272.76

391.98

454.80

592.31

----------------------------------------------------------------------------------------------------------------------

TURNOVER

Hino Chassis

827.18

1,063.18

1,436.81

1,428.39

2,474.12

1,607.31

1,124.60

2,385.51

2,124.40

789.80

Bus Bodies

69.88

83.23

110.80

180.03